By Ankit Ajmera and David Shepardson
(Reuters) – Boeing Co (N:) on Wednesday swung to its first annual loss since 1997 as 737 MAX costs approach $19 billion and indicated it would again cut production of its bigger 787 Dreamliner aircraft, currently its main source of cash.
Boeing, which has halted 737 MAX production and is immersed in compensation talks with airline customers as it battles the biggest crisis in its history, had previously estimated a more than $8 billion price tag for the MAX fallout.
The aircraft was grounded in March after two crashes that killed 346 people and deliveries remain frozen.
The Chicago-based planemaker has been updating the 737 MAX flight control system and software to address issues believed to have played a role in both crashes.
On a conference call, President and CEO David Calhoun said he believed the company could meet a goal to win regulatory approval for the planes to fly again by mid-year. Boeing had initially targeted 737 MAX approval in 2019, a timeline that proved overly optimistic and, coupled with criticism over the company’s culture, contributed to former CEO Dennis Muilenburg’s departure.
Calhoun rebuffed recent media suggestions that he was a Boeing “insider” ill-suited to introducing radical change, but acknowledged he had had a “front row seat” as a member of Boeing board for past 10 years and pledged to overhaul the company’s culture.
Costs related to the global grounding of Boeing’s once fast-selling 737 MAX reached $14.6 billion in 2019 and the planemaker warned of another $4 billion in charges in 2020 due to the expense of slowly re-starting production.
The amount does not include potential settlements or damages from more than 100 lawsuits the company is facing victims’ families in both crashes. It is also the target of a U.S. criminal investigation into matters related to the 737 MAX plane.
“I’ve got to restore trust, confidence and faith in the Boeing company,” Calhoun said on the call.
Boeing shares were 1.4% higher, as some analysts had expected an even larger charge for 737 MAX costs. The stock has lost about a quarter of its value since early March 2019.
Boeing’s core operating loss was $2.53 billion, or $2.33 per share, compared with a profit of $3.87 billion, or $5.48 per share, a year earlier.
Analysts on average expected Boeing to post earnings per share of $1.47 in the quarter, though several had predicted a loss amid a wide range of forecasts due to uncertainties over the cost of the 737 MAX crisis.
The company also booked more charges on its military tanker and space programs.
JETS AND CASH
Adding to Boeing’s pain, demand for its bigger and more profitable jet – the 787 Dreamliner – has waned in the face of the U.S.-China trade war.
Boeing had already announced in October plans to lower the production rate for its 787 Dreamliner to 12 per month in late 2020 from 14 and now expects to cut the rate to 10 per month in early 2021, hurting cash flow at a time when its debt is mounting.
Boeing reported negative free cash flow of $2.67 billion for the fourth quarter ended Dec. 31, compared with a positive free cash flow of $2.45 billion a year earlier.
Cash flow recovery is not expected to start until 2021, Chief Financial Officer Greg Smith said on the call.
The MAX charges include $8.3 billion to compensate airline customers that are canceling flights and scaling back growth plans in a hit to profits while their MAX jets remain grounded.
U.S. airlines have taken the MAX off their schedules until early June and have said they need at least 30 days after FAA approval to prepare their jets and train pilots. Boeing is recommending both simulator and computer-based training for 737 MAX pilots.
General Electric Co (N:) plans to slash 737 MAX engine deliveries to Boeing roughly in half this year.
In a respite from the crisis over the MAX, Boeing successfully staged the first flight of a larger jet, the 777X, on Saturday.
But Calhoun has sent the aerospace giant back to the drawing board on proposals for a new mid-market aircraft, effectively shelving in their current form plans worth $15 billion-$20 billion.
He told analysts the decision was not about him “not wanting to do new airplanes. We’ll do one.”
“But honestly right now it’s all about the MAX.”